What are the biggest risks of parking? A broken door? Scratched bumper? For consumers who fall victim to the harmful practice of debt parking, the impact on their financial health can be devastating. If you are a debt collector engaged in debt parking, the FTC’s settlement with Midwest Recovery Systems indicates that you may face enforcement action for violations of the FTC Act, the Fair Debt Collection Practices Act, and the Fair Credit Reporting Act.
What exactly is debt parking? This is the practice of placing an alleged debt on a consumer’s credit report without first trying to communicate the debt to the consumer. Some call it “passive debt collection,” but the harm it causes is not passive. Consumers often don’t know this until a mortgage company, prospective employer or other decision-maker pulls their credit report and discovers a debt that appears to be outstanding. Many people feel pressured to make repayments due to the balance of a house, car, or job—even though they may not actually owe the money.
That’s the strategy employed by Missouri-based Midwest Recovery Systems and its owners, Brandon M. Tumber, Kenny W. Conway and Joseph H. Smith, the FTC said. According to the lawsuit, since at least 2015, the defendants have reported more than $98 million in false or highly questionable payday loan debts to credit reporting agencies, unresolved fraudulent claims debts, bankruptcy debts, and ongoing consumer health insurance recounts. Fee debts, even debts that people have paid.
The FTC alleges that the defendants continued to collect these debts even in the face of numerous red flags regarding their validity. In fact, when consumers are able to dispute alleged debts, defendants often conclude that 80 to 97 percent of them are either inaccurate or invalid. This is not surprising since many of these debts originate from certain payday lenders and others that have been sued by the Federal Trade Commission for illegal practices.
The complaint cites an example of how the defendants used debt parking to help them generate millions of dollars in gross revenue. A consumer was told when he applied for a mortgage that $1,500 in outstanding medical debt lowered his credit score and could prevent him from purchasing a home. He contacted the hospital he allegedly owed the debt to, but was told he only owed $80 in out-of-pocket costs. Still, the FTC said the defendants refused to forgive the debt and threatened consumers with lawsuits if repayments were not made. His complaint is just one of thousands received by Midwest Recovery.
For those working in the collection field, the complaint in this case deserves careful reading. In addition to alleging that the defendants made false or unsubstantiated statements in violation of the Federal Trade Commission Act and the Fair Debt Collection Practices Act, the complaint also specifically questions their debt parking strategy as an unfair practice under the FDCPA. The FTC said they also violated the FDCPA by failing to provide verification notices, one of the protections in the statute designed to ensure consumers have the information they need to dispute invalid debts. The other three counts charge the defendants with violating the Fair Credit Reporting Act by providing information to credit reporting agencies that they knew or had reasonable grounds to believe was inaccurate, failing to conduct reasonable investigations into disputes, and failing to report the results of those investigations to consumers. By.
The settlement offers some takeaways for others in the collections ecosystem.
A consumer’s credit report is a no-parking zone. This is the FTC’s first case to address the issue of debt parking, and therefore the first to challenge unfair practices under the FDCPA, but the message couldn’t be clearer. Debt collectors who deposit false or questionable debts may be subject to scrutiny by law enforcement. What’s more, this parking behavior carries remedial measures that go far beyond a ticket or fine. In addition to the financial judgment and harsh injunctive terms, the settlement requires the company to turn over all remaining assets and requires one defendant to sell its stake in another debt collection agency and hand over the proceeds.
Watch for symptoms of suspicious medical debt. The Midwest Recovery Settlement Agreement was one of the FTC’s first settlements to address medical debt. More than 43 million consumers have outstanding medical debt on their credit reports, and medical debt accounts for more than half of the debt reported by third-party collection agencies. But given the complex and often opaque system of insurance underwriting and cost-sharing, medical billing often creates confusion and uncertainty for consumers. Now more than ever, the issue of accuracy is a concern.
Use caution at the intersection of debt collection and credit reporting. Reporting a debt first and raising questions later—or not raising questions at all—can land a debt collector in hot water for FDCPA and FCRA violations. Prudent industry members will scrutinize suspicious debt categories and debts to dubious creditors. They also contact consumers to hear their feedback before providing information to credit reporting agencies.